Online Privacy Bills Would Hurt E-commerce, Trade Group Says

Proposals in the U.S. Congress that would create new rules for websites collecting personal data would cripple the online advertising and publishing industries, e-commerce trade group NetChoice said Thursday.

NetChoice, in releasing its fourth Internet Advocates' Watchlist for Ugly Laws (iAwful), named online privacy legislation from Representative Bobby Rush and a similar draft bill from Representatives Rick Boucher and Cliff Stearns as the worst current legislative proposals for the Internet.

Second on the iAwful list is the Main Street Fairness Act, a bill from Representative Bill Delahunt, a Massachusetts Democrat, that would allow states to collect sales taxes from online sellers after they sign on to the so-called Streamlined Sales and Use Tax Agreement.

The bill from Illinois Democrat Rush, introduced in July, would allow individual Internet users to sue some websites and advertising networks if they fail to comply with the legislation's rules on getting permission for collecting personal data. The bill, which would allow Web users to seek up to US$1,000 per violation, would create a "barrage of lawsuits," said Steve DelBianco, executive director of NetChoice.

Rush's bill, along with the privacy draft from Virginia Democrat Boucher and Florida Republican Stearns, would regulate marketing data used in behavioral, or interest-based, advertising, DelBianco said. Marketing data "deserves much less concern" over privacy than does financial or medical information, he said.

"If we apply the same financial and medical scrutiny to non-personally identifiable information, we're going to endanger one of the few remaining growth industries where America leads the world, that is online services," he added. "These bills, if they move forward, are going to make interest-based advertising much less effective. That causes less revenue to pay for reporters, for writers, for developers ... on ad-supported websites."

The two proposals would make it easy for website users to opt out of data collection, even when it's not personally identifiable, DelBianco said. The Boucher and Stearns proposal would create new data-collection regulations for small websites asking only for user names, he added.

There has been recent controversy over the privacy implications of new products offered by Google, Facebook and other websites, but users and privacy advocates let the companies know immediately of their privacy concerns, DelBianco said.

"Those companies made adjustments right away, in Internet time, not on legislative time," he added. "That's the way it ought to work. If America is going to continue to innovate, we need flexibility to try things and the flexibility to immediately adjust and react. If you don't keep customers happy, they leave."

Representatives of Rush and Boucher didn't immediately respond to a request for comments. But both lawmakers have said they're concerned that e-commerce sites have little oversight about what information they collect from consumers. Some privacy advocates have criticized the bills, saying they would write lax privacy practices into law.

"Our legislation confers privacy rights on individuals, informing them of the personal information that is collected and shared about them and giving them greater control over the collection, use and sharing of that information," Boucher said earlier this year. "Our goal is to encourage greater levels of electronic commerce by providing to Internet users the assurance that their experience online will be more secure."

Second on the newest iAwful list is Delahunt's bill, which would allow states to collect sales tax from online vendors based outside their borders. For about a decade, states have been working to come to an agreement on a streamlined sales tax that would simplify sales tax collections for catalog- and Internet-based sellers.

In 1992, the U.S. Supreme Court ruled that states could not tax the sales of retailers that didn't have facilities inside the state's borders, with justices saying that the differing rules in thousands of U.S. taxing jurisdictions create a burden for remote sellers.

Nearly half of the states have signed up to be part of the Streamlined Sales and Use Tax Agreement, but the agreement continues to allow states to have several differing tax rules, including purchasing amount thresholds and tax rates, DelBianco said.

"They are nowhere near the simplification they aspired to a decade ago," DelBianco said. "Streamlined has lost its way."

In addition, backers of the Streamlined Sales and Use Tax Agreement are pushing for businesses with sales as little as US$100,000 a year to be taxed, DelBianco said. In earlier years, businesses with sales of less than $5 million would be exempted.

NetChoice's complaints aren't justified, countered Rory Sheehan, a spokesman for Delahunt. There's software that fully automates the tax-collection process, and some Internet-based companies are already using it, he said.

"These software programs make it real easy," Sheehan said. "When an online order is made, the ZIP code of the customer is entered and the correct amount of tax is automatically added to the order. It's that simple. The seller doesn't have to do anything -- but load the software."

The third bill on the iAwful list is a Colorado law that went into effect Thursday, requiring Internet retailers to notify the Colorado Department of Revenue of their sales to state residents, so that the state can collect sales taxes from those buyers. The law creates huge privacy problems, with the state knowing every product a Colorado resident purchased online, DelBianco said.

DelBianco was asked during a press conference why he was concerned about Internet users' privacy with the Colorado law, but opposed the federal online privacy bills. The two situations are different, he said.

"In Colorado, it's the government collecting information on you, not vendors," DelBianco said. "When it comes to protecting people, I really believe we should protect people from choices they can't make. People can make the choice to use Google or Facebook. But if I live in Colorado, I don't have a choice that the Colorado Department of Revenue is forcing anyone I buy from out of state to report what I bought."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.